Skip to Content

JPMorgan Limited Duration Bd R6 JUSUX

Analyst rating as of

Morningstar’s Analysis

Analyst rating as of .

A fine securitized-focused option at the short end of the curve.

Our analysts assign Silver ratings to strategies that they have high conviction will outperform a relevant index, or most peers, over a market cycle.

A fine securitized-focused option at the short end of the curve.

Senior Analyst

Summary

| |

JPMorgan Limited Duration Bond benefits from the collaborative efforts of an experienced group of securitized specialists and a solid approach. Those advantages are enough to award the strategy’s cheapest share class a Morningstar Analyst Rating of Silver, while its more expensive share classes are rated Bronze or Neutral.

Veteran managers Michael Sais and Robert Manning, who have managed the strategy since 1995 and 2013, respectively, have the support of a cadre of value-driven managers, analysts, and traders with dedicated securitized and credit specialties based in Columbus, Ohio. JPMorgan’s efforts to more closely integrate its fixed-income resources across various global sector hubs has improved this group’s access to the broad firm’s research and risk tools.

The team applies rigorous fundamental analysis to assets across the securitized spectrum, and its profile is fairly unique in its peer group. The strategy’s Bloomberg 1-3 Year Government Credit Index benchmark holds no securitized sectors, while its typical short-term bond Morningstar Category peer dedicates around a fourth of its portfolio to securitized investments. This portfolio has held 70%-90% in such assets during the preceding decade, primarily comprising agency collateralized mortgage obligations along with nonagency mortgages, agency passthroughs, commercial mortgages, and asset-backed securities. The team limits credit risk by limiting purchases to investment-grade fare and minds interest-rate risk by keeping duration in a one- to three-year band.

Though Sais and his team have a storied history picking CMOs with strong cash flows, the strategy’s results have been mixed relative to its benchmark and peers over his long reign as lead manager: from September 1995 through August 2021, its Institutional share class’ 3.5% result roughly matched its bogy but lagged 70% of its distinct category rivals. The strategy’s persistent underweighting in corporate credit relative to its typical peer and benchmark will cause it to trail when corporate credit rallies but outperform in more-challenging environments. When spiking Treasury yields jittered the market over the first quarter of 2021, the strategy held up a bit better than its typical rival.

Process

| |

This Columbus-based team’s long-standing and rigorous focus on bottom-up analysis of securitized fare earns the strategy an Above Average Process Pillar rating.

Lead manager Michael Sais and his team apply their intensive cash flow analysis to a variety of securitized fare while targeting a short duration band between 1.0 and 3.0 years. The portfolio remains rooted in agency mortgages, but nonagency residential and commercial mortgages, ABS, and investment-grade corporate bonds are also consistent features. All assets must be investment-grade at time of purchase, and most holdings (65%-80%) are rated AAA. High-yield fare once made up a significant portion of this portfolio in the wake of the 2008 global financial crisis, but this allocation has fallen to the low single digits in recent years.

Sais focuses on delivering steady performance in his investment style. Though the strategy holds both passthroughs and CMOs in its agency mortgage allocation, the team has long favored CMOs for their potential to deliver higher returns with more predictable risk characteristics. This, along with its typically sizable allocation to floating-rate securities, helps keep its duration within its stated band. Though the strategy can boost its yield with interest-only and principal-only derivatives, Sais has kept this allocation limited in recent years.

People

| |

A long-tenured manager benefits from the collective knowledge and analysis of a seasoned pool of securitized specialists, supporting an Above Average People Pillar rating.

After two years as a credit analyst focused on agency and nonagency MBS, Michael Sais joined this team in 1995 and rose to lead portfolio manager here roughly a year later. Since that point, he has provided process continuity for the team and served as a comanager on other mortgage-leaning strategies, such as JPMorgan Government Bond HLGAX and JPMorgan Mortgage-Backed Securities OMBAX. From 2005 to 2013, Rick Figuly (who remains with the firm as head of its core-bond team) comanaged with Sais but was immediately succeeded by Robert Manning, a two-decade contributor to the firm’s fixed-income efforts.

This Columbus-based cohort is known for its detailed bottom-up security recommendations and experienced securitized-focused portfolio managers and analysts who derive an edge from multidecade collaborations. As JPMorgan more closely integrated its fixed-income resources across various sector hubs from 2013 through 2019, turnover ticked up across the franchise but remained muted on the groups supporting this strategy. Today, Sais and his fellow buckeyes have improved access to the broad firm’s research and risk tools.

Parent

| |

J.P. Morgan Asset Management’s strong investment culture, which shows through its long-tenured, well-aligned portfolio managers and deep analytical resources, supports a renewed Above Average Parent rating.

Across asset classes and regions, the firm's diverse lineup features many Morningstar Medalists, such as its highly regarded U.S. equity income strategy that’s available globally. There's been some turnover in the multi-asset team recently, but it remains deeply resourced and experienced. Manager retention and tenure rates, and degree of alignment for U.S. mutual funds compare favorably among the competition. Managers' compensation emphasizes fund ownership over stock ownership, which is distinctive for a public company.

The firm continues to streamline its lineup and integrate its resources further. For instance, in late 2019, the multi-asset solutions division combined with the passive capabilities. The firm hasn’t launched trendy offerings as it’s mostly expanded its passive business lately, but acquisition-related redundancies and more hazardous launches in the past weigh on its success ratio, which measures the percentage of funds that have both survived and outperformed peers. Fees are regularly reviewed downward globally; they're relatively cheaper in the U.S. than abroad. Also, the firm is building its ESG capabilities and supports distinctive initiatives on diversity.

Price

| |

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s cheapest quintile. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.

Performance

| |

Over Michael Sais’ long reign as lead manager (September 1995-August 2020), the strategy’s Institutional share class’ 3.5% annualized return roughly matched its Bloomberg 1-3 Year Government Credit Index benchmark but lagged more than 70% of its short-term bond category rivals. This is partially by design, as his approach has long emphasized generating a steady return with low volatility rather than an outsized absolute return, and partially attributable to recent market trends, which have favored the corporate credit emphasized by category peers over the agency mortgages held in this portfolio.

Given the strategy’s focus on securitized fare (its index has none and its typical peer only stakes a fourth of assets in such fare) over corporate credit and U.S. Treasuries, this offering tends to trail its index and typical rival when corporate credit rallies but outperforms when it does poorly. Additionally, given the interest-rate sensitivity of U.S. Treasuries and investment-grade credit, this strategy’s persistent underweighting to these sectors should be a boon to its relative performance during periods of rising rates. It posted top-decile returns over both 2013 and 2018, years marked by rumblings in the Treasury and corporate markets, and recently bested more than half of its peers over both the Feb. 20-March 23, 2020, sell-off and the first quarter of 2021 yield shock. Investors should be prepared for slower results when credit markets rally: The strategy posted a bottom-decile return over 2019 and lagged more than two thirds of its rivals over the latter half of 2020.

Portfolio

| |

This strategy’s structural differences consistently make it an outlier in the short-term bond category. As of June 2021, its securitized holdings represented nearly 80% of assets, also differentiating it from its Bloomberg 1-3 Year Government Credit Index benchmark (which holds none) and its typical peer’s allocation (roughly 25%). On the other hand, it held no U.S. Treasuries (68% of its index) and 14% in corporate credit (30% of its index and roughly 45% of its typical rival’s portfolio).

Though agency mortgages have long been a focus of the managers here, they significantly reduced their stake in the sector to 30% as of June 2021 from 40% a year earlier. The managers felt that tight spreads, elevated prepayment levels, and uncertainty over the Libor to SOFR transition made the sector less attractive. In contrast, the managers perceived slightly more attractive valuations in corporate credit and increased this allocation to 14% from 9% a year earlier, putting a particular focus on banking credits (6%). Within the strategy’s ABS allocation (19%), the team continued to focus on auto loans (11%) but increased their stake in credit card-backed deals to 4% from 2% a year earlier, citing a handful of larger deals becoming attractive. Though the managers have long held a small stake in collateralized loan obligations backed by commercial property loans (1%), they cultivated a new stake in bank-loan-backed CLOs (2%), finding that these securities were trading at attractive valuations relative to more-traditional ABS.